RACA Journal June 2016 - Page 95

Industry Matters Ethical leadership and the governance of ethics By Nina le Riche* Good corporate governance is essentially about effective, ethical leadership. It finds its expression through the leadership team as a collective, setting the appropriate example and tone which is referred to as ethical governance. T he King Committee published the Draft Consultation of the King IV Report on Corporate Governance for South Africa 2016 (King IV) on 15 March 2016. It explains the governance of ethics as the role of the board in ensuring that the ethical culture within the organisation is aligned to the tone set by the leaders through the implementation of appropriate policies and practices. King IV specifically introduces the need to oversee that ethics are monitored and assessed for whether they are successful in establishing ethical norms, and to make the required public disclosures in this regard. It also asks of the board (or leaders of the company) to oversee that there is consequence management for adherence to or contraventions of ethics standards and proposes disclosure of effective ethics management and the outcomes thereof. To some extent, each company will have to create its own ‘ethics language’ to ensure that the values and culture of the business are appreciated and understood at all levels. While typically corporate culture is described as a ‘soft’ matter, it is most often the hardest to implement due to the fact that there is no box to tick to conclude that an end goal has been reached. The ‘what’ and the ‘how’ begins in the boardroom. Substantive engagement and oversight are required, as a mere process focus will not be good enough. King IV is clear in its expectation that the board cannot simply set the standard, but must also monitor progress. www.hvacronline.co.za #IndustryMatters A major sustained improvement in culture can be achieved by focusing on values and conduct that are the building blocks of culture. Focusing on values and conduct is a more practical approach, since these are observable and measurable, and can be specified in policies and linked to incentive structures. When an ethical culture is properly understood and well embedded, desired corporate values and conduct should be reflected in the daily habits and practices of employees – how they work, how they are evaluated, who is hired, promoted or rewarded, how employees act when managers are not present and when matters of personal judgement arise, and whom the company does business with. When broken down to this level, monitoring becomes easier. King IV specifically requires boards to disclose the effectiveness of ethics management and the outcomes thereof. In order to apply this recommendation, boards will have to set clear, measurable objectives and monitor the successful (or not) implementation thereof. It goes without saying that this is not easily achievable, and boards will have to carefully apply their minds to creating clear objectives, establish a common understanding of these objectives throughout the business and establish clear key performance indicators (KPIs) for management to ensure effective implementation. To some extent, each company will have to create its own ‘ethics language’ to ensure that the values and culture of the business is appreciated and understood at all levels. Of course, the King IV disclosure requirement also means that the board remains accountable to stakeholders, and this level of transparency will enable stakeholders to hold the board to account also with respect to the company’s performance on embedding values, ethics and culture. RACA *Nina le Riche is the director – Risk Advisory at Deloitte RACA Journal I June 2016 93